# Mutual Savings Associations, Mutual Holding Company Reorganizations, and Conversions From Mutual to Stock Form > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A02-19730 ## Record - **Collection:** Federal Register - **Document type:** Rule - **Published:** August 9, 2002 - **Citation:** 67 FR 52010 ## Text DEPARTMENT OF THE TREASURY Office of Thrift Supervision 12 CFR Parts 563b, 574, and 575 [No. 2002-34] RIN 1550-AB24 Mutual Savings Associations, Mutual Holding Company Reorganizations, and Conversions From Mutual to Stock Form AGENCY: Office of Thrift Supervision, Treasury. ACTION: Final rule. SUMMARY: The Office of Thrift Supervision (OTS) is amending its regulations on the mutual-to-stock conversion process and portions of its regulations on mutual holding company reorganizations. This rule is based on the Notice of Proposed Rulemaking (First Proposal) and the Interim Final Rule, published July 12, 2000, and a re-proposed regulation (Re-proposal), published April 9, 2002. This final rule includes modifications to the provisions addressing business plans. In addition, it addresses certain matters involving conversions from the mutual to the stock form, by, among other things, adding demand account holders to the definition of savings account holders, allowing accelerated vesting in management benefit plans for changes of control, adding rules to establish charitable organizations, and clarifying the policy on the amount of proceeds allowed to be retained at the holding company level. DATES: Effective on October 1, 2002. FOR FURTHER INFORMATION CONTACT: David A. Permut, Senior Attorney, (202) 906-7505; Gary Jeffers, Senior Attorney, (202) 906-6457, Business Transactions Division, Chief Counsel's Office; or Mary Jo Johnson, Project Manager, (202) 906-5739, Supervision Policy, Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552. The final rule and the related forms will also be posted on the OTS Internet Site at http://www.ots.treas.gov. SUPPLEMENTARY INFORMATION: I. Background Pursuant to its broad authority to regulate mutual savings associations, authorize mutual holding company (MHC) reorganizations, and regulate mutual-to-stock conversions of savings associations under the Home Owners' Loan Act (HOLA), 1 on July 12, 2000, OTS published an Interim Final Rule (Interim Rule), revising OTS repurchase restrictions applicable to recently converted institutions, changing OTS policy on waivers of dividends by MHCs, and making certain technical changes to the regulations as a result of the passage of the Gramm-Leach-Bliley Act of 1999 (GLB Act). 2 On the same day, OTS published the First Proposal, proposing changes to OTS rules governing stock conversions and MHCs. 3 On April 9, 2002, OTS published the Re-proposal, refining the First Proposal in response to public comments and requesting additional public comment. 4 1 12 U.S.C. 1464(a), (i) and (p) and 1467a(o). 2 65 FR 43088. 3 65 FR 43092. 4 67 FR 17228. OTS undertook these actions based on numerous discussions with the management of mutual institutions, its experience with the conversion process, and developments in the marketplace regarding MHC reorganizations and mutual-to-stock conversions. OTS also reviewed its policies, practices, and regulations to assess whether additions or revisions were necessary. To respond completely to all the suggestions for change, OTS developed a comprehensive regulatory strategy governing mutual institutions, MHC reorganizations, and the mutual-to-stock conversion process. This comprehensive strategy includes: (1) New policy and examination guidance; (2) these final regulations for the mutual-to-stock conversion process and MHC minority stock offerings; and (3) revisions to the application forms used for the mutual-to-stock conversion process. II. Policy Guidance In the First Proposal, OTS indicated it would issue policy guidance in certain areas regarding mutual associations in connection with the changes to the MHC and conversion regulations. OTS has developed new examination guidance to address many of the concerns mutual associations raised, within the context of safe and sound operations. OTS has also enhanced its off-site monitoring systems to provide examiners with comparative peer groups of similarly situated mutual associations. See the Re-proposal for specific references to issued guidance. III. Summary of Comments OTS received 13 comment letters on the Re-proposal. Two individuals, three law firms, two thrifts, a regulator, and five trade groups submitted comments. OTS also participated in a meeting on the Re-proposal sponsored by America's Community Bankers on April 26 (attended by 23 participants), a conference telephone call on April 16 sponsored by the Mutual Advisory Council of the American Bankers Association (with representatives from 4 mutual institutions, two outside counsel, and representatives of the ABA), and a meeting with representatives of the FDIC on April 17. Issues raised by commenters are discussed in the item-by-item summary below. IV. Item-by-Item Summary A. General The greatest number of comments on the First Proposal and the Re-proposal involved the business plan, Regional Office non-objection to the business plan, and the pre-filing meeting requirements. While most commenters expressed appreciation for OTS revisions to the business plan provisions, there were still specific objections to portions of the Re-proposal. For example, commenters generally approved the removal of prior Regional Office non-objection to the business plan, but certain commenters objected to one or more of the factors OTS proposed to use in evaluating the business plan. B. Pre-filing Meeting Under the Re-proposal, OTS would have required each association contemplating a conversion to meet with the appropriate Regional Office, in a pre-filing meeting at least ten days prior to publishing a plan of conversion, to discuss the proposed business plan. The proposed regulations contemplated that the association's board of directors, or a committee of the board including outside directors, would attend the meeting. One commenter commended OTS for the changes to the pre-filing meeting requirement, and stated it had no objection to the requirement. Two commenters opposed the pre-filing meeting in its entirety, and two other commenters supported such meetings, provided they were not used to “second guess” management. One commenter questioned whether the proposed strategic plan to be discussed at the pre-filing meeting was just an early draft of the business plan. A number of commenters asked for clarification of whether OTS was requiring the whole board to attend the pre-filing meeting and where it had to be held. It has been OTS’ normal practice to discuss a savings association's conversion plans with the board of directors. Therefore, a pre-filing meeting does not result in any additional burden. In response to the request for clarification as to where and who must attend the meeting, OTS has added language to the final regulation indicating that, if the board desires, OTS will send a representative from the Regional Office to the association to meet with the board of directors or a committee of the board. To respond to a comment questioning why the pre-filing meeting must occur at least ten days prior to passage of the plan of conversion, OTS has revised the final regulation to require a meeting prior to passage of the plan, but without requiring the meeting to occur a specified number of days before passage. The short, written strategic plan OTS has requested to review and discuss at the meeting is not intended to take the place of the business plan. OTS reiterates that the purpose of this meeting is not to substitute the agency's judgment for that of the directors, but to require the board to articulate its plans for the association and the implications of those plans before the conversion process actually begins. C. General Comments on the Business Plan The commenters considered the business plan provisions in the Re-proposal to be an improvement over those in the First Proposal. Several commenters commended OTS for eliminating the requirement for prior Regional Office non-objection to the business plan. Several of the commenters supported a business plan requirement generally. Certain others opposed the business plan as unnecessary, claiming, in one case, that OTS did not require such plans for other capital raising efforts and so should not for conversions. Another commenter suggested that any mutual association that did not convert should produce a business plan to justify that decision. One commenter stated that the implication still remained that if the business plan is unacceptable, the application will be denied. OTS requires business plans for significant capital raising applications, such as applications for new savings associations and continues to believe such plans are necessary in stock conversions, because of the generally large amount of capital that will be raised and the change in form of ownership inherent in the transaction. Under the final regulation, business plans must be filed at the time a conversion application is submitted, or the application will be rejected as materially deficient. As a practical matter, however, OTS strongly encourages submission of business plans before the application filing to help ensure timely approval of the conversion application. D. Business Plan Standards The Re-proposal provided that a converting association's business plan should, among other things: (i) Clearly and completely describe projected operations, including the deployment of conversion proceeds; (ii) demonstrate that the plan of conversion will substantially serve to meet credit and lending needs in the proposed market area; (iii) demonstrate how the new capital will support projected operations and activities; (iv) describe the risks associated with the plan; (v) demonstrate adequate expertise and staffing to manage growth prudently; and (vi) demonstrate that the association will achieve a reasonable return on equity. The Re-proposal also provided that the association could not project stock repurchases or returns of capital in the first year of the business plan, or extraordinary dividends at any time during the three-year plan. OTS also clarified that OTS would weigh all of the factors together, and no single factor would determine whether a business plan was acceptable. One commenter asked for clarification whether the business plan components were “standards” or “requirements” and whether all of them had to be met. The same commenter asked for a waiver provision for when a component was inapplicable. One commenter thought the regulations should specifically state that a business plan for a state-chartered savings association would require state approval by the appropriate state regulator. Several commenters asked for clarification whether there was a business plan requirement for MHC reorganizations that do not involve a stock offering. Several commenters who discussed the business plan opposed the reasonable return on equity (ROE) factor. In addition, certain commenters asserted that OTS was “over[ly] paternalistic” and concerned about the “need for capital;” that the business plan standards were “onerous” or meant to protect OTS interests; that OTS was biased in favor of management; or that the business plan was a way to “second guess” management. One commenter asserted that OTS appeared to believe that “need” for capital is a threshold requirement for conversion, and that OTS is ignoring the fact that there are many other reasons to justify a conversion. To address the concerns of the commenters, the final regulation combines several of the business plan components, indicates that no single factor will be determinative for any business plan, and that OTS will look at every plan on a case-by-case basis. OTS reiterates that the business plan does not create a “needs” test for conversions, and recognizes that many other factors go into the decision whether to convert. OTS, as the safety and soundness regulator of savings associations, believes the specific requirements are appropriate to ensure that an association contemplating such a significant transaction, with considerable ramifications regarding capital, management, and business operations, has considered the consequences of the transaction in its business plan. Accordingly, the final regulation continues to include a business plan requirement, and sets forth the factors OTS will consider in evaluating business plans. 5 5 OTS notes that failure to submit a business plan for an MHC reorganization gives rise to a rebuttable presumptive disqualifier under § 575.4(c)(2). In addition, establishing a Mid-tier, with or without a stock issuance, requires OTS approval under the Acquisition of Control Regulations, which also establish a rebuttable presumptive disqualifier for failure to submit a business plan. See 12 CFR 574.7(g)(2)(ii). An applicant may provide information to rebut the presumptive disqualifier. Several of the comments demonstrate that commenters believed the various factors in the Re-proposal were separate “requirements” that had to be satisfied for approval of a conversion. The final regulation clarifies that OTS will weigh all of the factors together, and no single factor will determine whether a business plan is acceptable. For example, lack of management experience with past growth will not be as significant if the business plan demonstrates realistic deployment of the conversion proceeds for new growth. All of the commenters addressing the proposed ROE factor objected to OTS's use of ROE as a factor in evaluating the business plan, pointing out that such a standard was generally unrealistic for a newly converted company, and particularly difficult to achieve for an already well-capitalized company. OTS has reviewed the factors it will consider when evaluating a business plan and decided to combine several factors that address similar issues concerning deployment of proceeds. OTS continues to believe that investor reaction to return on their investment should be a valid concern for a converting institution. The final rule will emphasize that the business plan must describe how it will safely and soundly deploy the proceeds received from the perspectives of opportunities to deploy proceeds, the projected operations and activities, and what the return will be to investors who buy stock in the association, in particular, near the end of the three-year business plan period, when the association has had time to deploy most, if not all of the conversion proceeds. One commenter believed that the requirement that the converting association submit a certificate signed by two-thirds of the board of directors, stating that the business plan adequately reflects their plans should be deleted, claiming it is redundant, because the board of directors certifies elsewhere that it has read and approved the plan when it submits the application for conversion. OTS believes it is important that directors certify specifically that the business plan reflects their actual plans. The same commenter also asserted that the required legal opinion at the completion of the conversion was too broad and would cause counsel to opine on matters of which it had no knowledge. OTS has considered this comment and believes that an opinion that the association has complied with all laws applicable to the conversion is appropriate. For years OTS has required similar opinions with respect to compliance with state laws (for converting state-chartered institutions), and has not encountered difficulties regarding the submission of such opinions. Another commenter objected to the requirement that each applicant demonstrate that the deployment of proceeds in the business plan will help meet the credit and lending needs of the communities served by the applicant. The commenter, apparently believing this requirement to be newly proposed, asserted that the requirement would reduce “flexibility” in the conversion process. OTS points out that this standard has been in the conversion regulations since 1994. 6 In evaluating applications under this standard, OTS has taken into account the differing positions of converting savings associations, and has found many different types of plans to be acceptable under the standard. 6 See 12 CFR 563b.11, as added by 59 FR 61262, Nov. 30, 1994. E. MHCs and Mutuality In the preamble to the First Proposal, OTS asked a series of questions about what OTS could do to enhance the attractiveness of the MHC charter. OTS also specifically stated that it encouraged savings associations that were considering conversion to stock form first to carefully consider the choice of an MHC charter as an interim step. In addition, OTS specifically proposed certain changes to the MHC regulations to permit the issuance of additional stock benefit plans, and a number of other innovations that OTS believes will enhance the attractiveness of the MHC option. Taken together, these steps appeared to some commenters as expressing an agency bias for the MHC form. OTS suggestions on enhancing the MHC charter were intended to expand the options available to a mutual association, not to give preference to one form of charter over another. The MHC is an alternative for mutual associations that are contemplating conversion to stock form. The MHC structure retains the benefits and essential nature of the mutual charter, while providing greater access to capital markets. In addition, in sec. 401(b) of the GLB Act, 7 Congress expanded the investment and activities authority of MHCs to include the activities of financial holding companies. OTS amended the MHC regulations to reflect those changes. 8 The final regulation retains the proposed enhancements to the MHC form to make it a long-term alternative to full conversion. 7 Pub. L. 106-102, 113 Stat. 1338 (1999). 8 65 FR 43088, Jul. 12, 2000. OTS continues to encourage mutual associations seeking new capital to consider the MHC form of reorganization with a limited stock issuance, rather than a full conversion. This is a particularly useful alternative for mutual associations that have no immediate plans for deployment of substantial amounts of new capital. F. Mutual Capital Questions OTS asked a number of questions in the preambles to the First Proposal and the Re-proposal regarding capital for mutual associations. OTS observed that mutual associations could currently raise additional capital in a number of ways that did not involve conversion to stock form. These methods included mutual capital certificates, subordinated debt, trust preferred securities, or the formation of real estate investment trusts (REITs). OTS asked if there were other methods of raising capital and why the methods mentioned were not widely used. One commenter suggested that MHCs should be allowed to issue non-voting stock that would have a claim on the economic interest of the MHC without controlling management. OTS is concerned that issuing non-voting stock with a claim on the economic interest of the MHC might complicate the ability of an MHC to complete a second step stock conversion. Another commenter recommended amending the MHC regulations to allow stock to be issued for acquisitions without offering shares to existing stockholders. OTS has already authorized such an acquisition under existing MHC regulations, and is willing to consider such acquisitions in the future. Both the preamble to the First Proposal and to the Re-proposal discussed whether OTS should issue guidance regarding capital distributions by mutual associations. A number of commenters addressed this issue, all suggesting OTS not issue guidance in this area because they felt this should be a business decision of the association. OTS does not propose to issue regulatory guidance on capital distributions by mutual associations as part of this proposal. 9 9 Any capital distribution by mutual associations remains capital distribution regulations at 12 CFR part 563, subpart E. However, in response to a request from an association, the Chief Counsel issued a legal opinion addressing this issue on June 21, 2002. 10 10 The legal opinion is avaialble on the OTS website. G. Stock Repurchases In the Interim Rule, OTS revised its regulations to eliminate restrictions on stock repurchases by converted savings associations after the first year following conversion. The rule change was made in part to bring OTS policy closer to that of the FDIC on this subject. Several commenters expressed appreciation that the rules of the two agencies would now be similar. Almost all the other commenters on this issue supported OTS changes, although one commenter suggested repurchase limitations should be eliminated completely. Two commenters suggested that there should be no restrictions on repurchases for associations completing second step stock conversions, because those companies had been public for some period of time prior to full conversion to stock form. The final regulation is consistent with the Interim Rule and the Re-proposal. See §§ 563b.510 and 563b.515. OTS is also making corresponding amendments to the MHC regulations at § 575.11(c). In response to the comment that associations that engage in second step stock conversions should receive different treatment, OTS believes that fully converted companies should receive the same treatment whether they reach that status in one step or two. In addition, OTS believes it is in the best interest of applicants to have similar treatment of stock repurchases among the agencies regulating the conversion process. As a matter of policy, OTS has taken the position that stock repurchases for management benefit plans that have been ratified by shareholders in the first year following conversion do not count toward the repurchase limitations in § 563b.3(g). The final regulation, at § 563b.510, clarifies this point. However, OTS will still require prior notification of any repurchases in the first year following conversion, even if they are not subject to OTS approval under the repurchase limitations. One commenter inquired whether a stock repurchase more than one year after conversion would require Regional Director approval as a material deviation from the business plan. OTS believes that it may constitute a material deviation, depending on what the business plan disclosed. Current MHC regulations permit purchases of stock in the open market for tax-qualified or non-tax-qualified employee stock benefit plans to be excluded from the repurchase limitations. 11 The final regulation will extend this exclusion from the repurchase limitations to fully converted companies. OTS notes that the FDIC permits purchases for employee stock ownership plans (ESOPs) to be excluded from the repurchase limitations for fully converted companies. 11 See 12 CFR 575.11(c)(1)(iv). H. Dividend Waivers The Interim Rule revised OTS policy on dividend waivers for MHCs. Prior OTS policy had adjusted exchange ratios for certain dividends waived in conversions of MHCs to stock form. No adjustment is now required, and § 575.11(d)(3) was amended to reflect this change in OTS policy. Most commenters supported this change in OTS policy although two opposed the change, stating their belief that OTS had changed its policy from protecting depositors to protecting management and minority interests. The final regulation is unchanged from the Interim Rule and the Re-proposal. OTS notes that the waiver of dividends results in more capital at the savings association, enhancing the safety and soundness of the savings association. OTS retains the authority to take enforcement action if it discovers abuses. I. Charitable Organizations The First Proposal and the Re-proposal included provisions regarding the establishment of a charitable organization in connection with a mutual-to-stock conversion. The provisions included discussing the purpose of the charitable organization, voting foundation shares in the same ratio as all other shares voted on proposals considered by shareholders, reserving board seats for an independent director and a director from the association, and dealing with conflicts of interest. The final regulation also specifies the conditions for approval, including examination by OTS at foundation expense, submission of annual reports, and compliance with all laws necessary to maintain the foundation's tax-exempt status. Most commenters on this subject were in favor of the proposed regulations, although one commenter stated that OTS should not allow for the establishment of a foundation in second step conversions. OTS believes that establishing a foundation in a second step conversion is acceptable with a separate minority shareholder vote in such transactions and has included that requirement in the final regulation. One commenter suggested that the requirement that certain language be included in all of the foundation's governing documents was excessive. In addition, this commenter suggested several regulatory revisions that OTS believes are improvements to the proposal, such as not requiring the submission of the operating plan until six months following the conversion. The final regulation and Exhibit 9 to the Form AC provide that applicants will not be required to submit the operating plan until six months after the conversion, and delete a previously requested legal opinion regarding the legality of the chartering documents under state law. Similarly, OTS will delete the requirement to include certain language in the foundation's bylaws and operating plan, and will make several other minor revisions at the suggestion of this commenter. OTS will also delete the provision that foundation compensation arrangements may need to be reviewed by the agency, because OTS already has that option. Upon effectiveness of the final regulation, waivers from certain provisions in the current conversion regulations now routinely requested in a conversion with a charitable foundation will no longer be necessary. J. Acquisitions of Converted Associations OTS regulations at § 563b.3(i)(3) provide that no person or company may acquire more than 10 percent of any class of equity security of a recently converted association for three years following conversion without OTS approval. OTS enacted this rule principally to provide a reasonable period of time for a recently converted association to deploy its new capital prudently according to the plan described in the offering documents, to acclimate to operating as a public company, and to do both without the distraction of considering takeover proposals. In the First Proposal, OTS noted that it intended to closely review applications under the existing standards to make sure all criteria are fully met before approving acquisitions within the first three years following conversion. In the Re-proposal, OTS requested comment on whether these provisions should apply to MHCs and whether Mid-tiers should be permitted to enact anti-takeover protections in their charters. Several commenters expressed support for the OTS position that a three-year restriction on acquisitions was appropriate and should apply to MHCs, and that anti-takeover protections for Mid-tiers were appropriate. One commenter thought OTS should implement a five-year restriction on acquisitions. One commenter suggested post-conversion restrictions for state-chartered savings associations should follow state law restrictions, rather than OTS restrictions. One commenter expressed confusion regarding what OTS is willing to allow. Another commenter suggested that OTS needed to show some flexibility in applying the rule, such as allowing acquisitions in less than three years in certain circumstances. Another commenter suggested OTS should allow no exceptions to the three-year “prohibition” on acquisitions. OTS reiterates that it always considers the merits of every case, and will continue to do so. OTS believes that all savings associations that convert under part 563b be subject to the post-conversion restrictions. After considering the comments, for the reasons stated above, OTS is finalizing the regulation as originally proposed. K. Demand Account Holders In both the First Proposal and the Re-proposal, OTS proposed to allow demand account holders to be considered eligible account holders for purposes of determining subscription rights in a conversion. Many applicants incorrectly believe that demand account holders are already eligible account holders. Others have requested OTS waivers to allow demand account holders to be included in the subscription. OTS routinely granted the waivers. In order to end the confusion regarding this issue, OTS proposed revising the regulations to include demand account holders in the subscription priorities. None of the commenters objected to this provision and one specifically supported it. OTS will enact the final regulation as proposed. L. Management Stock Benefit Plans In the First Proposal and the Re-proposal, OTS proposed changing the regulations to allow for accelerated vesting for management stock benefit plans in the event of a change of control. Currently, the regulations only allow acceleration for death or disability. Most commenters in this area agreed with this change, although two suggested OTS add retirement within one year of conversion as another reason for allowing acceleration. OTS believes that it is appropriate that the bases for acceleration, such as death, disability, or change of control of the savings association, not be within the individual's control. Therefore, the final regulation does not provide for accelerated vesting based on retirement. The First Proposal revised the section on management benefit plans to clarify that an association must present to shareholders for ratification any material amendments to previously approved management recognition plans, stock option plans, or other benefit plans that occur more than one year after conversion and that are inconsistent with the regulation. One commenter pointed out that the proposed language in the revision did not accomplish the purpose of the revision. OTS concurs and has revised the language in the final regulation to be consistent with the proposal. In response to the First Proposal, most commenters supported expansion of option plan opportunities for MHCs. However, two commenters were opposed to any options for management based on conflicts of interest or a view that benefit plans were a way for management to enrich itself. After considering the potential for small offerings in MHC structures, OTS proposed an additional limitation in the Re-proposal that OTS will not approve management benefit plans that in the aggregate award more than 25% of the number of shares ultimately issued in the public offering to minority shareholders. One commenter on the Re-proposal specifically supported establishment of the 25% limitation. Several commenters were unclear on how the 25% limit would be applied, and one commenter asserted that notwithstanding the 25% limit, the Re-proposal increased rewards to management without justification. One commenter asked OTS to clarify whether the 25% limit would apply to stock benefit plans enacted after the initial stock issuance. OTS believes management benefit plans that are reasonable, present no safety or soundness concerns, and are ratified by the shareholders, are not objectionable. Most companies use such plans to attract qualified executives and to reward management for performing well. With respect to the comments requesting clarification, the regulation has been revised to indicate that all stock benefit plans for officers and directors are included in the 25% limitation, except for ESOPs (whether allocated or unallocated). Also, the 25% limit would apply to subsequent stock benefit plans, but would be based on 25% of the stock outstanding on the date subsequent stock plans were ratified by the shareholders. One commenter suggested two technical revisions to §§ 563b.380(c) and 563b.500(c). Those revisions correct language that was inadvertently deleted from the proposal regarding ESOP purchases in the offering and amendments of previously approved benefit plans. OTS appreciates the technical corrections and is including them in the final rule. OTS also proposed to add a provision that clarifies a supervisory policy requiring exercise or forfeiture of stock benefits in certain circumstances, such as if an association becomes critically undercapitalized. This provision is included in the final regulation. See § 563b.500. M. Holding Company Proceeds The First Proposal stated that at least 50% of the gross proceeds in a mutual-to-stock conversion must be infused into the converting savings association, and more must be infused if OTS concludes, for supervisory reasons, that a larger capital infusion is necessary. The Re-proposal clarified that 50% of the net proceeds must be infused into the savings association. One commenter concurred with the clarification. OTS is enacting this provision as re-proposed. N. Mutual Holding Company Revisions 1. General In the First Proposal and the Re-proposal, OTS proposed allowing the adoption of additional stock option plans without the need to issue stock to all categories of subscribers. The final regulation retains this provision. OTS notes that adoption of additional plans still requires filing an application with OTS, registering additional stock where appropriate, and shareholder ratification of additional plans. Among the factors OTS will consider when reviewing additional plans are the purpose for creating the additional plans, management ratings, and supervisory considerations at the converted savings association. OTS received a number of comments after the First Proposal that holding companies inserted in between MHCs and their savings association subsidiaries (Mid-tiers) should be allowed to be state-chartered entities. In the Re-proposal, OTS noted that Mid-tiers are MHCs, and MHCs, by statute, must be federally chartered. 12 One commenter claimed OTS chartering and regulation of Mid-tiers had worked very well. Two commenters claimed that OTS was attempting to “eviscerate” state law in this area. OTS continues to believe that the statute requires that all Mid-tier holding companies be federally chartered. OTS believes the two commenters may be assuming that OTS's position applies to MHC structures that involve neither a savings association nor an institution that has elected to be treated as a savings association under sec. 10(l) of HOLA (that is, to MHCs that draw membership from banks but not savings associations). OTS notes that if the MHC structure does not include a savings association within the meaning of sec. 10 of HOLA, the MHC structure is not subject to part 575, and in such case, neither the MHC nor the Mid-tier may be chartered by OTS. 12 See 12 U.S.C. 1467a(o)(7). Two commenters recommended that OTS allow Mid-tiers to adopt certain provisions of state law with regard to indemnification or limitation of liability currently available to state chartered corporations. As OTS noted in response to a comment from the First Proposal, OTS has allowed the adoption of limited liability bylaws on a case by case basis for other federal associations and, therefore, would consider this for Mid-tiers. 2. Acquisitions of Mutual Holding Company Structures In the Re-proposal, OTS asked for comment on the recent series of proposals to acquire MHC structures. In the context of these transactions, MHCs and their subsidiary entities have asked: (i) Whether Mid-tier holding companies (or, if there is no Mid-tier holding company, the subsidiary savings association) may adopt the pre-approved charter provisions set forth at 12 CFR 552.4(b)(8), such as the charter provision prohibiting acquisitions of, and offers to acquire, more than ten percent of any class of equity security of the entity for five years; and (ii) whether OTS applies 12 CFR 563b.3(i)(3) to savings association subsidiaries or Mid-tier holding companies that have issued stock within the previous three years. Recently completed or proposed transactions have demonstrated that takeover pressures now exist in the context of MHC structures. Minority stockholders have sought to pressure MHC structures to be acquired by mutual institutions or other MHC structures. In light of recent takeover attempts, and particularly in light of the hostile situations that have developed, OTS has determined to allow the post-conversion anti-takeover restrictions in the charter of a Mid-tier stock holding company. These restrictions would be consistent with the purposes of those provisions generally and give a newly converted MHC time to deploy its new capital and adjust to managing its institution in the MHC environment. 13 One commenter discussed this issue and agreed with OTS that such provisions should be included in Mid-tier charters. 13 The MHC regulations provide that the procedural and substantive requirements of 12 CFR 563b.3 through 563b.8 apply to all MHC stock issuances under § 575.7 unless clearly inapplicable. In the past, OTS staff has informally advised certain acquirors that it has not considered § 563b.3(i)(3) to be clearly applicable in the MHC context. Accordingly, OTS is allowing Mid-tier holding companies to include the provisions set forth at 12 CFR 552.4(b)(8) in their charters. 14 In addition, OTS intends to apply § 563b.3(i)(3) to Mid-tier holding companies and subsidiary stock institutions that complete stock offerings under § 575.7. One commenter agreed with OTS that it should apply § 563b.3(i)(3) in the context of Mid-tiers and MHC savings association subsidiaries. 14 If an existing Mid-tier wishes to amend its charter to include such provisions, it may do so following the provisions at 12 CFR 575.14(c)(2). 3. “Second Step Conversions” of MHCs Section 575.12 of the MHC regulations generally governs the conversion of MHCs to stock form (frequently called “second step conversions”). In all such transactions to date, OTS staff has required that the majority of the minority shares of the Mid-tier or savings association subsidiary, as the case may be, vote in favor of the second step conversion, in addition to votes otherwise required. OTS staff has imposed this requirement because the minority shareholders received different treatment in the second step conversion than the majority interest. The minority shareholders received stock in an amount to be determined under an “exchange ratio”, while the majority interest (the mutual depositors) received rights to subscribe to the remaining shares to be issued in the transaction, at the offering price. OTS staff concluded that the requirement was appropriate in order to help ensure the fairness of the transaction. OTS proposed to include this requirement, which has been applicable to every second step conversion to date, in the MHC regulations, at 12 CFR 575.12(a)(3). One commenter disagreed with OTS on this issue but offered no reasons for the disagreement. OTS has included the requirement in the final regulation. O. Supervisory Conversions To conform the language in OTS regulations more closely to sec. 5(o) of the HOLA, the statute governing supervisory conversions, OTS proposed certain changes to the regulatory language regarding Voluntary Supervisory Conversions. There were no comments on this language. The revised language can be found at §§ 563b.625 and 563b.630 of the final regulation. P. Merger Conversions One commenter suggested that OTS should change its policy to allow merger conversions for institutions with greater than $25 million in assets. Another commenter suggested the federal regulators should take a consistent approach to merger conversions to discourage “forum shopping.” That same commenter suggested OTS should use the CAMELS rating categories as factors to be considered in merger conversions. In response to these comments, OTS reiterates that there is no set asset size for an institution undertaking a merger conversion. OTS merely suggested in its 1994 statement about merger conversions that institutions smaller than $25 million in assets may encounter difficulties in completing standard conversions and, therefore, were more likely candidates for merger conversions. OTS policy on merger conversions was articulated in the preamble to the OTS conversion regulation of 1994, 59 FR 61247, 61254, Nov. 30, 1994. In that regulation, OTS stated that it would limit merger conversions to cases involving financially weak institutions. In addition, OTS indicated it would consider allowing merger conversions where a converting institution could demonstrate by clear and convincing evidence that a standard conversion would not be economically feasible, based on the ratio of expenses to gross proceeds, because of the asset size of the institution. 15 15 See 59 FR 61247, 61255. OTS gave an example of institutions with assets of less than $25 million as more likely to be able to establish a justification for doing a merger conversion. In the last eight years OTS has approved only one merger conversion. That approval was based on the criteria articulated in the 1994 regulation. OTS reiterates the guidelines it established in the 1994 regulation and wishes to clarify that institutions proposing merger conversions should not propose plans where management of the disappearing institution would receive anything more than they could if they had undertaken a standard conversion. In addition, institutions contemplating a merger conversion must demonstrate that a merger conversion is the only viable alternative and document what other proposed solutions the company pursued, that the proposed distribution of assets is fair to all parties, and that the institution used independent counsel to represent the interests of the institution. OTS notes that these are the same criteria the FDIC uses when it evaluates proposals for merger conversions. Q. Forms The First Proposal contained revisions to all of the forms currently in the conversion regulations, and drafted a new form that facilitates the conversion process (Form OF for the Order Form). In drafting these forms, OTS moved a number of requirements currently in the regulations to the related forms. OTS received one comment on the forms with some suggestions for revisions to the section on foundations. As discussed earlier, OTS concurs with some of the proposed revisions and has revised the form accordingly. The forms will continue to be available through OTS Washington and Regional Offices and will be accessible on OTS's website. V. Disposition of Existing Rules Original provision Re-proposed provision Comment 12 CFR 563b.1 12 CFR 563b.5 Nonsubstantive revision, moved. 12 CFR 563b.2(a) 12 CFR 563b.25 Substantive revisions, deletions, and moved. 12 CFR 563b.2(b) Deleted. 12 CFR 563b.3(a) 12 CFR 563b.5(a) Nonsubstantive revision, moved. 12 CFR 563b.3(b) 12 CFR 563b.200(a) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(1) 12 CFR 563b.330(a) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(2) 12 CFR 563b.355(a) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(2)(i)-(ii) 12 CFR 563b.375(a), (d) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(3) 12 CFR 563b.360 Nonsubstantive revision, moved. 12 CFR 563b.3(c)(4) 12 CFR 563b.335(b), (c) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(4)(i) 12 CFR 563b.320(c) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(4)(ii) 12 CFR 563b.375(c) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(4)(iii) 12 CFR 563b.375(b) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(4)(iv) 12 CFR 563b.375(d) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(5) 12 CFR 563b.320(d), 365 Nonsubstantive revision, moved. 12 CFR 563b.3(c)(6) 12 CFR 563b.320(e), 335(b), (d) Nonsubstantive revision, deletions, and moved. 12 CFR 563b.3(c)(6)(i) 12 CFR 563b.385(a), (c), 380(a) Substantive revision, deletions, and moved. 12 CFR 563b.3(c)(6)(ii)-(iii) 12 CFR 563b.395 Nonsubstantive revision, moved. 12 CFR 563b.3(c)(6)(iv) 12 CFR 563b.390(b) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(7) 12 CFR 563b.385(a), (c) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(8) 12 CFR 563b.370 Nonsubstantive revision, deletions, and moved. 12 CFR 563b.3(c)(9) 12 CFR 563b.505(d) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(10) 12 CFR 563b.330(a), 335(b) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(11) 12 CFR 563b.420(a) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(12) 12 CFR 563b.445(a) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(13) 12 CFR 563b.430(d), 445(b), 465, 485 Nonsubstantive revision, moved. 12 CFR 563b.3(c)(14) 12 CFR 563b.25 Nonsubstantive revision, moved. 12 CFR 563b.3(c)(15) 12 CFR 563b.440, 445(c) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(16) 12 CFR 563b.140, 425 Nonsubstantive revision, moved. 12 CFR 563b.3(c)(17) 12 CFR 563b.505(a) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(18) 12 CFR 563b.505(b)-(c) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(19) 12 CFR 563b.530(a)-(c) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(20) 12 CFR 563b.150(b) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(21) 12 CFR 563b.130 Nonsubstantive revision, moved. 12 CFR 563b.3(c)(22) 12 CFR 563b.345(b) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(23) 12 CFR 563b.320(a)-(d), 380(a)-(c) Nonsubstantive revision, moved. 12 CFR 563b.3(c)(24) 12 CFR 563b.520(a)-(b) Nonsubstantive revision, moved. 12 CFR 563b.3(d)(1)-(7) Deleted. 12 CFR 563b.3(d)(8) 12 CFR 563b.385(a) Nonsubstantive revision, moved. 12 CFR 563b.3(d)(9) 12 CFR 563b.385(b) Nonsubstantive revision, moved. 12 CFR 563b.3(d)(10)-(11) Deleted. 12 CFR 563b.3(d)(12) 12 CFR 563b.390(a) Nonsubstantive revision, moved. 12 CFR 563b.3(d)(13) Deleted. 12 CFR 563b.3(e)(1) 12 CFR 563b.25 Nonsubstantive revision, moved. 12 CFR 563b.3(e)(2) Deleted. 12 CFR 563b.3(f)(1) 12 CFR 563b.445(b), 450, 455, 480 Nonsubstantive revision, moved. 12 CFR 563b.3(f)(2) 12 CFR 563b.445(b), 450 Nonsubstantive revision, moved. D12 CFR 563b.3(f)(3) 12 CFR 563b.470(e), 475 Revision with partial deletion, moved. 12 CFR 563b.3(f)(4) 12 CFR 563b.460 Nonsubstantive revision, moved. 12 CFR 563b.3(f)(5) 12 CFR 563b.470(a)-(d) Nonsubstantive revision, moved. 12 CFR 563b.3(g)(1) 12 CFR 563b.510 Revision with deletion, moved. 12 CFR 563b.3(g)(2) 12 CFR 563b.510, 520(a) Nonsubstantive revision, moved. 12 CFR 563b.3(g)(3) 12 CFR 563b.510, 515 Substantive revision with deletion, moved. 12 CFR 563b.3(g)(4) 12 CFR 563b.500 Substantive revision, moved. 12 CFR 563b.3(h) 12 CFR 563b.340(a) Nonsubstantive revision, moved. 12 CFR 563b.3(i)(1)-(2) 12 CFR 563b.340(b)(1) Nonsubstantive revision, moved. 12 CFR 563b.3(i)(3)(i) 12 CFR 563b.525 Nonsubstantive revision, moved. 12 CFR 563b.3(i)(3)(ii) 12 CFR 563b.420(b) Nonsubstantive revision, moved. 12 CFR 563b.3(i)(3)(iii) 12 CFR 563b.525(b) Nonsubstantive revision, moved. 12 CFR 563b.3(i)(4)(i) Deleted. 12 CFR 563b.3(i)(4)(ii)-(iv) 12 CFR 563b.525(c)(1)-(3) Nonsubstantive revision, moved. 12 CFR 563b.3(i)(4)(v) 12 CFR 563b.525(c)(4) Nonsubstantive revision, moved. 12 CFR 563b.3(i)(4)(vi)-(5) 12 CFR 563b.525(d)(1)-(2) Nonsubstantive revision, moved. 12 CFR 563b.3(i)(6) 12 CFR 563b.430(a), (b) Nonsubstantive revision, moved. 12 CFR 563b.3(i)(7)(i)-(ii) 12 CFR 563b.25, 525(b) Nonsubstantive revision, moved. 12 CFR 563b.3(i)(7)(iii)-(iv) Deleted. 12 CFR 563b.3(j) 12 CFR 563b.5(a) Nonsubstantive revision, moved. 12 CFR 563b.4(a)(1) 12 CFR 563b.120 Nonsubstantive revision, moved. 12 CFR 563b.4(a)(2) Deleted. 12 CFR 563b.4(a)(3) 12 CFR 563b.125 Nonsubstantive revision, moved. 12 CFR 563b.4(a)(3)(i)-(ii), (4)(i)-(xviii) 12 CFR 563b.135(a), (b) Nonsubstantive revision, moved. 12 CFR 563b.4(a)(4)(xix) Deleted. 12 CFR 563b.4(a)(5) 12 CFR 563b.135(c) Nonsubstantive revision, moved. 12 CFR 563b.4(b)(1)(i) 12 CFR 563b.180 Nonsubstantive revision, moved. 12 CFR 563b.4(b)(1)(ii) 12 CFR 563b.185 Nonsubstantive revision, moved. 12 CFR 563b.4(b)(2) Deleted. 12 CFR 563b.4(b)(3) 12 CFR 563b.180(b) Nonsubstantive revision, moved. 12 CFR 563b.4(c) 12 CFR 563b.160 Nonsubstantive revision, moved. 12 CFR 563b.5(a) 12 CFR 563b.250 Nonsubstantive revision, moved. 12 CFR 563b.5(b)-(c) 12 CFR 563b.270(b) Nonsubstantive revision, moved. 12 CFR 563b.5(d)(1) 12 CFR 563b.255 Nonsubstantive revision, moved. 12 CFR 563b.5(d)(2) 12 CFR 563b.260, 265 Nonsubstantive revision, moved. 12 CFR 563b.5(d)(3) 12 CFR 563b.255(h) Nonsubstantive revision, moved. 12 CFR 563b.5(d)(4) 12 CFR 563b.260 Nonsubstantive revision, moved. 12 CFR 563b.5(e)(1)-(2) 12 CFR 563b.150, 155 Nonsubstantive revision, deletions, and moved. 12 CFR 563b.5(e)(3) 12 CFR 563b.275(d) Nonsubstantive revision, moved. 12 CFR 563b.5(e)(4) Deleted. 12 CFR 563b.5(e)(5) 12 CFR 563b.150, 160(a)-(b) Nonsubstantive revision, moved. 12 CFR 563b.5(e)(6) 12 CFR 563b.275(e) Nonsubstantive revision, moved. 12 CFR 563b.5(e)(7) 12 CFR 563b.275(c) Nonsubstantive revision, moved. 12 CFR 563b.5(f) 12 CFR 563b.280 Nonsubstantive revision, moved. 12 CFR 563b.5(g)(1)-(2) 12 CFR 563b.285(a) Nonsubstantive revision, moved. 12 CFR 563b.5(g)(3) 12 CFR 563b.290 Substantive revision, moved. 12 CFR 563b.5(h) 12 CFR 563b.285(b) Nonsubstantive revision, moved. 12 CFR 563b.6(a) 12 CFR 563b.225(a) Nonsubstantive revision, moved. 12 CFR 563b.6(b) 12 CFR 563b.230 Nonsubstantive revision, moved. 12 CFR 563b.6(c)(1) 12 CFR 563b.235 Nonsubstantive revision, moved. 12 CFR 563b.6(c)(2) Deleted. 12 CFR 563b.6(d) 12 CFR 563b.225(d) Nonsubstantive revision, moved. 12 CFR 563b.6(e) 12 CFR 563b.225(b)-(c) Nonsubstantive revision, moved. 12 CFR 563b.7(a)(1) 12 CFR 563b.325(a) Nonsubstantive revision, moved. 12 CFR 563b.7(a)(2) 12 CFR 563b.300(a) Nonsubstantive revision, moved. 12 CFR 563b.7(a)(3) 12 CFR 563b.325(a) Nonsubstantive revision, moved. 12 CFR 563b.7(a)(4) Deleted. 12 CFR 563b.7(b) 12 CFR 563b.300(e), 305 Nonsubstantive revision, moved. 12 CFR 563b.7(c) 12 CFR 563b.330 Nonsubstantive revision, moved. 12 CFR 563b.7(d) 12 CFR 563b.200(b)(8), 300(c)-(d), Form OC, Item 3 Nonsubstantive revision, moved. 12 CFR 563b.7(e) 12 CFR 563b.335(c) Nonsubstantive revision, moved. 12 CFR 563b.7(f)(1)-(2) 12 CFR 563b.200(b) Nonsubstantive revision, deletion, and moved. 12 CFR 563b.7(f)(3) Deleted. 12 CFR 563b.7(g)(1)-(2) 12 CFR 563b.335(a), Form OF, Items (1), (2) Nonsubstantial revisions, deletions, and moved. 12 CFR 563b.7(g)(3), (4), (5) Form OF, Items (3), (4), (5) Nonsubstantive revision, moved. 12 CFR 563b.7(h) 12 CFR 563b.345(a), 350(c) Nonsubstantive revision, moved. 12 CFR 563b.7(i) 12 CFR 563b.400 Nonsubstantive revision, moved. 12 CFR 563b.7(j) 12 CFR 563b.350(a) Nonsubstantive revision, moved. 12 CFR 563b.7(k)(1)-(2) 12 CFR 563b.405 Nonsubstantive revision, moved. 12 CFR 563b.7(k)(2)(i)-(ii) 12 CFR 563b.310(d) Nonsubstantive revision, moved. 12 CFR 563b.7(k)(3) Deleted. 12 CFR 563b.7(k)(4) 12 CFR 563b.310(a) Nonsubstantive revision, moved. 12 CFR 563b.7(k)(5) 12 CFR 563b.310(b)-(d) Substantive revision, moved. 12 CFR 563b.8(a) 12 CFR 563b.155 Substantive revision, moved. 12 CFR 563b.8(b)(1)-(2) 12 CFR 563b.150 Nonsubstantive revision, moved. 12 CFR 563b.8(b)(3) Deleted. 12 CFR 563b.8(c)(1)-(2)(i)-(ii) 12 CFR 563b.240 Nonsubstantive revision, moved. 12 CFR 563b.8(c)(2)(iii) 12 CFR 563b.260 Substantive revision, moved. 12 CFR 563b.8(c)(3) 12 CFR 563b.300(a), (c) Substantial revisions, deletions, and moved. 12 CFR 563b.8(d)(1)-(2) 12 CFR 563b.430 Nonsubstantive revision, moved. 12 CFR 563b.8(d)(3) 12 CFR 563b.435 Nonsubstantive revision, moved. 12 CFR 563b.8(e) 12 CFR 563b.115(a), 155, 180(b), Form AC, General Instruction B Nonsubstantial revisions, deletions, and moved. 12 CFR 563b.8(f) Deleted. 12 CFR 563b.8(g) Form AC, General Instruction B Nonsubstantive revision, moved. 12 CFR 563b.8(h) Deleted. 12 CFR 563b.8(i)-(l) Form AC, General Instruction B Nonsubstantive revision, moved. 12 CFR 563b.8(m) Deleted. 12 CFR 563b.8(n) Form AC, General Instruction B Nonsubstantive revision, moved. 12 CFR 563b.8(o) Deleted. 12 CFR 563b.8(p) 12 CFR 563b.150(a)(6), Form AC, General Instruction B Nonsubstantive revision, moved. 12 CFR 563b.8(q) Form AC, General Instruction B Nonsubstantive revision, moved. 12 CFR 563b.8(r) Form AC, General Instruction B Substantive revision, moved. 12 CFR 563b.8(s) Form AC, General Instruction B Nonsubstantive revision, moved. 12 CFR 563b.8(t)(1) 12 CFR 563b.100 Nonsubstantive revision, moved. 12 CFR 563b.8(t)(2) Deleted. 12 CFR 563b.8(u) 12 CFR 563b.205 Nonsubstantial revisions, deletions, and moved. 12 CFR 563b.8(v) 12 CFR 563b.530(d) Nonsubstantive revision, moved. 12 CFR 563b.9 12 CFR 563b.10 Nonsubstantive revision, moved. 12 CFR 563b.10 12 CFR 563b.605(b)-(c) Nonsubstantive revision, moved. 12 CFR 563b.11 12 CFR 563b.200(c) Nonsubstantive revision, moved. 12 CFR 563b.20 12 CFR 563b.600 Nonsubstantive revision, moved. 12 CFR 563b.21(a) 12 CFR 563b.605 Nonsubstantive revision, moved. 12 CFR 563b.21(b) 12 CFR 563b.650, 610 Nonsubstantive revision, moved. 12 CFR 563b.22 Deleted. 12 CFR 563b.23(a)-(c) 12 CFR 563b.670, 675 Nonsubstantive revision, additions, and moved. 12 CFR 563b.23(d) 12 CFR 563b.690 Nonsubstantive revision, moved. 12 CFR 563b.24(a)-(b)(1), (3) 12 CFR 563b.625(a)(1) Nonsubstantive revision, moved. 12 CFR 563b.24(b)(2) Deleted. 12 CFR 563b.24(c) 12 CFR 563b.625(b) Substantive addition, moved. 12 CFR 563b.25 12 CFR 563b.630 Nonsubstantive revision, moved. 12 CFR 563b.26 12 CFR 563b.625(a)(2) Nonsubstantive revision, moved. 12 CFR 563b.27(a) 12 CFR 563b.650 Nonsubstantive revision, moved. 12 CFR 563b.27(b) 12 CFR 563b.660(f)(1) Nonsubstantive revision, moved. 12 CFR 563b.27(c) 12 CFR 563b.660(a)(2) Nonsubstantive revision, moved. 12 CFR 563b.27(d) 12 CFR 563b.660(c) Nonsubstantive revision, moved. 12 CFR 563b.27(e) 12 CFR 563b.660(g)(2) Nonsubstantive revision, moved. 12 CFR 563b.27(f)-(g) 12 CFR 563b.660(e) Nonsubstantive revision, moved. 12 CFR 563b.27(h) 12 CFR 563b.660(f)(2) Nonsubstantive revision, moved. 12 CFR 563b.27(i) 12 CFR 563b.660(g)(1) Nonsubstantive revision, moved. 12 CFR 563b.27(j) 12 CFR 563b.660(g)(3) Nonsubstantive revision, moved. 12 CFR 563b.27(k) 12 CFR 563b.660(g)(4) Nonsubstantive revision, moved. 12 CFR 563b.27(l) 12 CFR 563b.660(d)(3) Nonsubstantive revision, moved. 12 CFR 563b.27(m) 12 CFR 563b.660(d)(2) Nonsubstantive revision, moved. 12 CFR 563b.27(n) 12 CFR 563b.660(d)(1) Nonsubstantive revision, moved. 12 CFR 563b.27(o) 12 CFR 563b.660(d)(4) Nonsubstantive revision, moved. 12 CFR 563b.27(p) 12 CFR 563b.660(a)(3) Nonsubstantive revision, moved. 12 CFR 563b.27(q)-(r) 12 CFR 563b.660(h) Nonsubstantive revision, moved. 12 CFR 563b.27(s) 12 CFR 563b.660(g)(5) Nonsubstantive revision, moved. 12 CFR 563b.28 12 CFR 563b.610 Nonsubstantive revision, moved. 12 CFR 563b.29(a) 12 CFR 563b.660 Nonsubstantive revision, moved. 12 CFR 563b.29(b) Deleted. 12 CFR 563b.29(d)(1)-(2) 12 CFR 563b.430 Nonsubstantive revision, moved. 12 CFR 563b.29(d)(3) 12 CFR 563b.435 Nonsubstantive revision, moved. 12 CFR 563b.30 12 CFR 563b.675 Nonsubstantive revision, moved. 12 CFR 563b.31 12 CFR 563b.680 Nonsubstantive revision, moved. 12 CFR 563b.32 12 CFR 563b.670(c) Nonsubstantive revision, moved. 12 CFR 563b.33 12 CFR 563b.670(d) Nonsubstantive revision, moved. 12 CFR 563b.100 Form AC—1680 Nonsubstantive revision, moved. 12 CFR 563b.101 Form PS—1681 Nonsubstantive revision, moved. 12 CFR 563b.102 Form OC—1682 Nonsubstantive revision, moved. 12 CFR 563b.15, 20, 105, 110, 115, 165 New provisions. 12 CFR 563b.295 New provision. 12 CFR 563b.550-575 New provisions. Form OF—1683 New form. VI. Use of “Plain Language” Section 722 of the Gramm-Leach-Bliley Act of 1999 requires the use of “plain language” in all proposed and final rules published after January 1, 2001. OTS invited comment on whether the proposed rule was written in “plain language” and how to make the proposed rule easier to understand. No commenter indicated that the First Proposal or the Re-proposal needed to be revised to be understood. The final rule is substantially similar to the First Proposal and the Re-proposal and OTS believes the final rule is written plainly and clearly. VII. Executive Order 12866 The Director of OTS determined that this final rule is not a “significant regulatory action” for the purposes of Executive Order 12866. VIII. Regulatory Flexibility Act Analysis The Regulatory Flexibility Act of 1980 (RFA) requires federal agencies to either prepare a final regulatory flexibility analysis with this final rule or certify that the rule would not have a significant impact on a substantial number of small entities. 16 In its proposed rules, OTS requested comments on whether the rule would have a significant impact on a substantial number of small entities. No commenters addressed this issue. Therefore, OTS has prepared the following analysis. 17 16 5 U.S.C. 605(b). 17 5 U.S.C. 604(a). A description of the reasons why OTS is taking this action, and a statement of the objectives of, and legal basis for, the final rule are in the supplementary material above. 1. Small Entities to Which the Final Rule Would Apply The final rule applies to mutual savings associations that propose to convert to the stock form of ownership. Under OTS jurisdiction, there are currently approximately 390 mutual savings associations, 34 publicly traded MHCs, 2 non-publicly traded MHCs, and 27 MHCs with no stock issued. Of these institutions, approximately 230 have less than $100 million in assets. Small depository institutions are generally defined, for RFA purposes, as those with assets under $100 million. 18 In the past two years, OTS has processed 12 and 10 applications, respectively, to convert from mutual to stock or mutual holding company form. Based on this experience, OTS believes that the final rule affects fewer than 15 savings associations annually. 18 13 CFR 121.201 Section 52, Subsection 522 (2002). 2. Requirements of the Final Rule The final rule requires mutual savings associations wishing to convert to stock form to prepare a plan of conversion and other supporting forms and documents (such as a business plan and an independent appraisal) and submit the documents for OTS approval. The current mutual-to-stock conversion regulations require all of these documents or information. The final rule includes a new requirement that a savings association that intends to establish a charitable organization as part of its conversion must supply certain documents and information regarding the charitable organization. Under the current application processing policies, OTS often requires a savings association that intends to establish a charitable organization as part of its conversion to submit the same type of information that the final rule would require. As a result, this new requirement should not have any additional impact on small savings associations. The final rule also adds demand account holders to the definition of savings account holders, allows accelerated vesting in management benefit plans for changes of control, and clarifies OTS policy regarding the amount of proceeds allowed at the holding company level. None of these provisions, however, should add to the reporting, recordkeeping, or compliance requirements for small entities. Although it is not clear that the RFA requires a quantitative analysis of the impact of the final regulatory changes, OTS provides the following estimate. The final rule's primary economic impact on small savings associations relates to the expense of preparing the application to convert. Savings associations wishing to convert must prepare the necessary documents and forms, including a plan of conversion, a business plan, and an appraisal. Preparation of these documents may require legal or professional help. OTS's experience in the conversion process indicates that savings associations generally hire legal counsel, accountants, marketing agents, and professional appraisers to assist in completion of the necessary documents and forms. Savings associations converting under the current regulations spend approximately $250,000 to one million dollars each to go through the process. We note that the new requirements will add only 10 hours of additional paperwork in preparation, and may save institutions that decide after preliminary business plan preparation and discussion not to convert significant time and expense. See discussion infra at Section IX. The new requirement for information supporting a proposed charitable contribution should not increase these costs appreciably. 3. Significant Alternatives Section 604(a) of the RFA requires OTS to describe how the agency attempted to minimize the rule's impact on small entities and why it chose the alternative adopted in the final rule over other alternatives. Section 603(c) lists several examples of potential alternatives, including (1) establishing different compliance or reporting requirements or timetables that take into account the resources available to small entities; (2) clarifying, consolidating, or simplifying compliance and reporting requirements for small entities; (3) using performance standards rather than design standards; and (4) exempting small entities from coverage of the rule or a part of the rule. After consideration, OTS does not believe that any of these alternatives are feasible. As noted, more than half of the savings associations to which the final rule could apply meet the RFA standard for “small depository institutions.” In fact, the conversion process is aimed largely at small institutions that want to raise capital in the open market by converting to the stock form of ownership. Given that the conversion process is designed with small institutions in mind, modifying the requirements for such small institutions is not necessary. Moreover, given that a conversion cannot be measured for performance until it takes place, the use of performance standards rather than design standards is impractical. To reduce regulatory burden consistent with the goals of this regulation, the final rule specifically permits OTS to waive any requirement under the part where the waiver is equitable and not detrimental to the savings association, the account holders, or the public interest. This process will provide substantial flexibility to OTS and the savings association to minimize any significant economic impact of a provision on a specific institution. IX. Unfunded Mandates Reform Act of 1995 Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L. 104-4 (Unfunded Mandates Act), requires that an agency prepare a budgetary impact statement before promulgating a rule that includes a federal mandate that may result in expenditure by state, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more in any one year. If a budgetary impact statement is required, sec. 205 of the Unfunded Mandates Act also requires an agency to identify and consider a reasonable number of regulatory alternatives before promulgating a rule. OTS determined that the final rule will not result in expenditures by state, local, or tribal governments or by the private sector of $100 million or more in any one year. Accordingly, this rulemaking is not subject to sec. 202 of the Unfunded Mandates Act. X. Paperwork Reduction Act The information collection requirements contained in the final rule, 12 CFR part 563b, are virtually identical to those included in the July 2000 Proposed Rule on this subject. OTS has modified the forms in only minor ways, but the burden on respondents remains unchanged from those in the earlier rule, which the Office of Management and Budget (OMB) approved on August 31, 2000 under control number 1550-0014. Respondents/recordkeepers are not required to respond to any collection of information unless it displays a currently valid OMB control number. List of Subjects 12 CFR Part 563b Reporting and recordkeeping requirements, Savings associations, Securities. 12 CFR Part 574 Administrative practice and procedure, Holding companies, Reporting and recordkeeping requirements, Savings associations, Securities. 12 CFR Part 575 Administrative practice and procedure, Capital, Holding companies, Reporting and recordkeeping requirements, Savings associations, Securities. Accordingly, the Office of Thrift Supervision amends 12 CFR, chapter V, as set forth below: 1. Part 563b is revised to read as follows: PART 563b—CONVERSIONS FROM MUTUAL TO STOCK FORM Sec. 563b.5 What does this part do? 563b.10 May I form a holding company as part of my conversion? 563b.15 May I form a charitable organization as part of my conversion? 563b.20 May I acquire another insured stock depository institution as part of my conversion? 563b.25 What definitions apply to this part? Subpart A—Standard Conversions Prior to Conversion 563b.100 What must I do before a conversion? 563b.105 What information must I include in my business plan? 563b.110 Who must review my business plan? 563b.115 How will OTS review my business plan? 563b.120 May I discuss my plans to convert with others? Plan of Conversion 563b.125 Must my board of directors adopt a plan of conversion? 563b.130 What must I include in my plan of conversion? 563b.135 How do I notify my members that my board of directors approved a plan of conversion? 563b.140 May I amend my plan of conversion? Filing Requirements 563b.150 What must I include in my application for conversion? 563b.155 How do I file my application for conversion? 563b.160 May I keep portions of my application for conversion confidential? 563b.165 How do I amend my application for conversion? Notice of Filing of Application and Comment Process 563b.180 How do I notify the public that I filed an application for conversion? 563b.185 How may a person comment on my application for conversion? OTS Review of the Application for Conversion 563b.200 What actions may OTS take on my application? 563b.205 May a court review OTS's final action on my conversion? Vote by Members 563b.225 Must I submit the plan of conversion to my members for approval? 563b.230 Who is eligible to vote? 563b.235 How must I notify my members of the meeting? 563b.240 What must I submit to OTS after the members' meeting? Proxy Solicitation 563b.250 Who must comply with these proxy solicitation provisions? 563b.255 What must the form of proxy include? 563b.260 May I use previously executed proxies? 563b.265 How may I use proxies executed under this part? 563b.270 What must I include in my proxy statement? 563b.275 How do I file revised proxy materials? 563b.280 Must I mail a member's proxy solicitation material? 563b.285 What solicitations are prohibited? 563b.290 What will OTS do if a solicitation violates these prohibitions? 563b.295 Will OTS require me to re-solicit proxies? Offering Circular 563b.300 What must happen before OTS declares my offering circular effective? 563b.305 When may I distribute the offering circular? 563b.310 When must I file a post-effective amendment to the offering circular? Offers and Sales of Stock 563b.320 Who has priority to purchase my conversion shares? 563b.325 When may I offer to sell my conversion shares? 563b.330 How do I price my conversion shares? 563b.335 How do I sell my conversion shares? 563b.340 What sales practices are prohibited? 563b.345 How may a subscriber pay for my conversion shares? 563b.350 Must I pay interest on payments for conversion shares? 563b.355 What subscription rights must I give to each eligible account holder and each supplemental eligible account holder? 563b.360 Are my officers, directors, and their associates eligible account holders? 563b.365 May other voting members purchase conversion shares in the conversion? 563b.370 Does OTS limit the aggregate purchases by officers, directors, and their associates? 563b.375 How do I allocate my conversion shares if my shares are oversubscribed? 563b.380 May my employee stock ownership plan purchase conversion shares? 563b.385 May I impose any purchase limitations? 563b.390 Must I provide a purchase preference to persons in my local community? 563b.395 What other conditions apply when I offer conversion shares in a community offering, a public offering, or both? Completion of the Offering 563b.400 When must I complete the sale of my stock? 563b.405 How do I extend the offering period? Completion of the Conversion 563b.420 When must I complete my conversion? 563b.425 Who may terminate the conversion? 563b.430 What happens to my old charter? 563b.435 What happens to my corporate existence after conversion? 563b.440 What voting rights must I provide to stockholders after the conversion? 563b.445 What must I provide my savings account holders? Liquidation Account 563b.450 What is a liquidation account? 563b.455 What is the initial balance of the liquidation account? 563b.460 How do I determine the initial balances of liquidation sub-accounts? 563b.465 Do account holders retain any voting rights based on their liquidation sub-accounts? 563b.470 Must I adjust liquidation sub-accounts? 563b.475 What is a liquidation? 563b.480 Does the liquidation account affect my net worth? 563b.485 What provision must I include in my new federal charter? Post-Conversion 563b.500 May I implement a stock option plan or management or employee stock benefit plan? 563b.505 May my directors, officers, and their associates freely trade shares? 563b.510 May I repurchase shares after conversion? 563b.515 What information must I provide to OTS before I repurchase my shares? 563b.520 May I declare or pay dividends after I convert? 563b.525 Who may acquire my shares after I convert? 563b.530 What other requirements apply after I convert? Contributions to Charitable Organizations 563b.550 May I donate conversion shares or conversion proceeds to a charitable organization? 563b.555 How do my members approve a charitable contribution? 563b.560 How much may I contribute to a charitable organization? 563b.565 What must the charitable organization include in its organizational documents? 563b.570 How do I address conflicts of interest involving my directors? 563b.575 What other requirements apply to charitable organizations? Subpart B—Voluntary Supervisory Conversions 563b.600 What does this subpart do? 563b.605 How may I conduct a voluntary supervisory conversion? 563b.610 Do my members have rights in a voluntary supervisory conversion? Eligibility 563b.625 When is a savings association eligible for a voluntary supervisory conversion? 563b.630 When is a BIF-insured state-chartered savings bank eligible for a voluntary supervisory conversion? Plan of Supervisory Conversion 563b.650 What must I include in my plan of voluntary supervisory conversion? Voluntary Supervisory Conversion Application 563b.660 What must I include in my voluntary supervisory conversion application? OTS Review of the Voluntary Supervisory Conversion Application 563b.670 Will OTS approve my voluntary supervisory conversion application? 563b.675 What conditions will OTS impose on an approval? Offers and Sales of Stock 563b.680 How do I sell my shares? Post-Conversion 563b.690 Who may not acquire additional shares after the voluntary supervisory conversion? Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 2901; 15 U.S.C. 78c, 78l, 78m, 78n, 78w. § 563b.5 What does this part do? (a) General. This part governs how a savings association (“you”) may convert from the mutual to the stock form of ownership. Subpart A of this part governs standard mutual-to-stock conversions. Subpart B of this part governs voluntary supervisory mutual-to-stock conversions. This part supersedes all inconsistent charter and bylaw provisions of federal savings associations converting to stock form. (b) Prescribed forms. You must use the forms prescribed under this part and provide such information as OTS may require under the forms by regulation or otherwise. The forms required under this part include: Form AC (Application for Conversion); Form PS (Proxy Statement); Form OC (Offering Circular); and Form OF (Order Form). (c) Waivers. OTS may waive any requirement of this part or a provision in any prescribed form. To obtain a waiver, you must file a written request with OTS that: (1) Specifies the requirement(s) or provision(s) you want OTS to waive; (2) Demonstrates that the waiver is equitable; is not detrimental to you, your account holders, or other savings associations; and is not contrary to the public interest; and (3) Includes an opinion of counsel demonstrating that applicable law does not conflict with the requirement or provision. § 563b.10 May I form a holding company as part of my conversion? You may convert to the stock form of ownership as part of a transaction where you organize a holding company to acquire all of your shares upon their issuance. In such a transaction, your holding company will offer rights to purchase its shares instead of your shares. All of the requirements of subpart A generally apply to the holding company as they apply to the savings association. Section 574.6 of this chapter contains OTS's holding company application requirements. § 563b.15 May I form a charitable organization as part of my conversion? When you convert to the stock form, you may form a charitable organization. Your contributions to the charitable organization are governed by the requirements of §§ 563b.550 through 563b.575. § 563b.20 May I acquire another insured stock depository institution as part of my conversion? When you convert to stock form, you may acquire for cash or stock another insured depository institution that is already in the stock form of ownership. § 563b.25 What definitions apply to this part? The following definitions apply to this part and the forms prescribed under this part: Acting in concert has the same meaning as in § 574.2(c) of this chapter. The rebuttable presumptions of § 574.4(d) of this chapter, other than §§ 574.4(d)(1) and (d)(2) of this chapter, apply to the share purchase limitations at §§ 563b.355 through 563b.395. Affiliate of, or a person affiliated with, a specified person is a person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with the specified person. Associate of a person is: (1) A corporation or organization (other than you or your majority-owned subsidiaries), if the person is a senior officer or partner, or beneficially owns, directly or indirectly, 10 percent or more of any class of equity securities of the corporation or organization. (2) A trust or other estate, if the person has a substantial beneficial interest in the trust or estate or is a trustee or fiduciary of the trust or estate. For purposes of §§ 563b.370, 563b.380, 563b.385, 563b.390, 563b.395 and 563b.505, a person who has a substantial beneficial interest in your tax-qualified or non-tax-qualified employee stock benefit plan, or who is a trustee or a fiduciary of the plan, is not an associate of the plan. For the purposes of § 563b.370, your tax-qualified employee stock benefit plan is not an associate of a person. (3) Any person who is related by blood or marriage to such person and: (i) Who lives in the same home as the person; or (ii) Who is your director or senior officer, or a director or senior officer of your holding company or your subsidiary. Association members or members are persons who, under applicable law, are eligible to vote at the meeting on conversion. Control (including controlling, controlled by, and under common control with ) means the direct or indirect power to direct or exercise a controlling influence over the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise as described in part 574 of this chapter. Eligibility record date is the date for determining eligible account holders. The eligibility record date must be at least one year before the date your board of directors adopts the plan of conversion. Eligible account holders are any persons holding qualifying deposits on the eligibility record date. IRS is the Internal Revenue Service. Local community includes: (1) Every county, parish, or similar governmental subdivision in which you have a home or branch office; (2) Each county's, parish's, or subdivision's metropolitan statistical area; (3) All zip code areas in your Community Reinvestment Act assessment area; and (4) Any other area or category you set out in your plan of conversion, as approved by OTS. Offer, offer to sell , or offer for sale is an attempt or offer to dispose of, or a solicitation of an offer to buy, a security or interest in a security for value. Preliminary negotiations or agreements with an underwriter, or among underwriters who are or will be in privity of contract with you, are not offers, offers to sell, or offers for sale. Person is an individual, a corporation, a partnership, an association, a joint-stock company, a limited liability company, a trust, an unincorporated organization, or a government or political subdivision of a government. Proxy soliciting material includes a proxy statement, form of proxy, or other written or oral communication regarding the conversion. Purchase or buy includes every contract to acquire a security or interest in a security for value. Qualifying deposit is the total balance in an account holder's savings accounts at the close of business on the eligibility or supplemental eligibility record date. Your plan of conversion may provide that only savings accounts with total deposit balances of $50 or more will qualify. Sale or sell includes every contract to dispose of a security or interest in a security for value. An exchange of securities in a merger or acquisition approved by OTS is not a sale. Savings account is any withdrawable account as defined in § 561.42 of this chapter, including a demand account as defined in § 561.16 of this chapter. Solicitation and solicit is a request for a proxy, whether or not accompanied by or included in a form of proxy; a request to execute, not execute, or revoke a proxy; or the furnishing of a form of proxy or other communication reasonably calculated to cause your members to procure, withhold, or revoke a proxy. Solicitation or solicit does not include providing a form of proxy at the unsolicited request of a member, the acts required to mail communications for members, or ministerial acts performed on behalf of a person soliciting a proxy. Subscription offering is the offering of shares through nontransferable subscription rights to: (1) Eligible account holders under § 563b.355; (2) Tax-qualified employee stock ownership plans under § 563b.380; (3) Supplemental eligible account holders under § 563b.355; and (4) Other voting members under § 563b.365. Supplemental eligibility record date is the date for determining supplemental eligible account holders. The supplemental eligibility record date is the last day of the calendar quarter before OTS approves your conversion and will only occur if OTS has not approved your conversion within 15 months after the eligibility record date. Supplemental eligible account holders are any persons, except your officers, directors, and their associates, holding qualifying deposits on the supplemental eligibility record date. Tax-qualified employee stock benefit plan is any defined benefit plan or defined contribution plan, such as an employee stock ownership plan, stock bonus plan, profit-sharing plan, or other plan, and a related trust, that is qualified under sec. 401 of the Internal Revenue Code (26 U.S.C. 401). Underwriter is any person who purchases any securities from you with a view to distributing the securities, offers or sells securities for you in connection with the securities' distribution, or participates or has a direct or indirect participation in the direct or indirect underwriting of any such undertaking. Underwriter does not include a person whose interest is limited to a usual and customary distributor's or seller's commission from an underwriter or dealer. Subpart A—Standard Conversions Prior to Conversion § 563b.100 What must I do before a conversion? (a) Your board, or a subcommittee of your board, must meet with OTS before you pass your plan of conversion. The meeting may occur at OTS or your offices at your option. At that meeting you must provide OTS with a written strategic plan that outlines the objectives of the proposed conversion and the intended use of the conversion proceeds. (b) You should also consult with OTS before you file your application for conversion. OTS will discuss the information that you must include in the application for conversion, general issues that you may confront in the conversion process, and any other pertinent issues. § 563b.105 What information must I include in my business plan? (a) Prior to filing an application for conversion, you must adopt a business plan reflecting your intended plans for deployment of the proposed conversion proceeds. Your business plan is required, under § 563b.150, to be included in your conversion application. At a minimum, your business plan must address: (1) Your projected operations and activities for three years following the conversion. You must describe how you will deploy the conversion proceeds at the converted savings association (and holding company, if applicable), what opportunities are available to reasonably achieve your planned deployment of conversion proceeds in your proposed market areas, and how your deployment will provide a reasonable return on investment commensurate with investment risk, investor expectations, and industry norms, by the final year of the business plan. You must include three years of projected financial statements. The business plan must provide that the converted savings association must retain at least 50 percent of the net conversion proceeds. OTS may require that a larger percentage of proceeds remain in the institution. (2) Your plan for deploying conversion proceeds to meet credit and lending needs in your proposed market areas. OTS strongly discourages business plans that provide for a substantial investment in mortgage securities or other securities, except as an interim measure to facilitate orderly, prudent deployment of proceeds during the three years following the conversion, or as part of a properly managed leverage strategy. (3) The risks associated with your plan for deployment of conversion proceeds, and the effect of this plan on management resources, staffing, and facilities. (4) The expertise of your management and board of directors, or that you have planned for adequate staffing and controls to prudently manage the growth, expansion, new investment, and other operations and activities proposed in your business plan. (b) You may not project returns of capital or special dividends in any part of the business plan. A newly converted company may not plan on stock repurchases in the first year of the business plan. § 563b.110 Who must review my business plan? (a) Your chief executive officer and members of the board of directors must review, and at least two-thirds of your board of directors must approve, the business plan. (b) Your chief executive officer and at least two-thirds of the board of directors must certify that the business plan accurately reflects the intended plans for deployment of conversion proceeds, and that any new initiatives reflected in the business plan are reasonably achievable. You must submit these certifications with your business plan, as part of your conversion application under § 563b.150. § 563b.115 How will OTS review my business plan? (a) OTS will review your business plan to determine that it demonstrates a safe and sound deployment of conversion proceeds, as part of its review of your conversion application. In making its determination, OTS will consider how you have addressed the applicable factors of § 563b.105. No single factor will be determinative. OTS will review every case on its merits. (b) You must file your business plan with the Regional Office. OTS may request additional information, if necessary, to support its determination under paragraph (a) of this section. You must file your business plan as a confidential exhibit to the Form AC. (c) If OTS approves your application for conversion and you complete your conversion, you must operate within the parameters of your business plan. You must obtain the prior written approval of the Regional Director for any material deviations from your business plan. § 563b.120 May I discuss my plans to convert with others? (a) You may discuss information about your conversion with individuals that you authorize to prepare documents for your conversion. (b) Except as permitted under paragraph (a) of this section, you must keep all information about your conversion confidential until your board of directors adopts your plan of conversion. (c) If you violate this section, OTS may require you to take remedial action. For example, OTS may require you to take any or all of the following actions: (1) Publicly announce that you are considering a conversion; (2) Set an eligibility record date acceptable to OTS; (3) Limit the subscription rights of any person who violates or aids a violation of this section; or (4) Take any other action to assure that your conversion is fair and equitable. Plan of Conversion § 563b.125 Must my board of directors adopt a plan of conversion? Prior to filing an application for conversion, your board of directors must adopt a plan of conversion that conforms to §§ 563b.320 through 563b.485 and 563b.505. Your board of directors must adopt the plan by at least a two-thirds vote. Your plan of conversion is required, under § 563b.150, to be included in your conversion application. § 563b.130 What must I include in my plan of conversion? You must include the information included in §§ 563b.320 through 563b.485 and 563b.505 in your plan of conversion. OTS may require you to delete or revise any provision in your plan of conversion if OTS determines the provision is inequitable; is detrimental to you, your account holders, or other savings associations; or is contrary to public interest. § 563b.135 How do I notify my members that my board of directors approved a plan of conversion? (a) Notice. You must promptly notify your members that your board of directors adopted a plan of conversion and that a copy of the plan is available for the members' inspection in your home office and in your branch offices. You must mail a letter to each member or publish a notice in the local newspaper in every local community where you have an office. You may also issue a press release. OTS may require broader publication, if necessary, to ensure adequate notice to your members. (b) Contents of notice. You may include any of the following statements and descriptions in your letter, notice, or press release. (1) Your board of directors adopted a proposed plan to convert from a mutual to a stock savings institution. (2) You will send your members a proxy statement with detailed information on the proposed conversion before you convene a members' meeting to vote on the conversion. (3) Your members will have an opportunity to approve or disapprove the proposed conversion at a meeting. At least a majority of the eligible votes must approve the conversion. (4) You will not vote existing proxies to approve or disapprove the conversion. You will solicit new proxies for voting on the proposed conversion. (5) OTS, and in the case of a state-chartered savings association, the appropriate state regulator, must approve the conversion before the conversion will be effective. Your members will have an opportunity to file written comments, including objections and materials supporting the objections, with OTS. (6) The IRS must issue a favorable tax ruling, or a tax expert must issue an appropriate tax opinion, on the tax consequences of your conversion before OTS will approve the conversion. The ruling or opinion must indicate the conversion will be a tax-free reorganization. (7) OTS, and in the case of a state-chartered savings association, the appropriate state regulator, might not approve the conversion, and the IRS or a tax expert might not issue a favorable tax ruling or tax opinion. (8) Savings account holders will continue to hold accounts in the converted savings association with the same dollar amounts, rates of return, and general terms as existing deposits. FDIC will continue to insure the accounts. (9) Your conversion will not affect borrowers' loans, including the amount, rate, maturity, security, and other contractual terms. (10) Your business of accepting deposits and making loans will continue without interruption. (11) Your current management and staff will continue to conduct current services for depositors and borrowers under current policies and in existing offices. (12) You may continue to be a member of the Federal Home Loan Bank System. (13) You may substantively amend your proposed plan of conversion before the members' meeting. (14) You may terminate the proposed conversion. (15) After OTS, and in the case of a state-chartered savings association, the appropriate state regulator, approves the proposed conversion, you will send proxy materials providing additional information. After you send proxy materials, members may telephone or write to you with additional questions. (16) The proposed record date for determining the eligible account holders who are entitled to receive subscription rights to purchase your shares. (17) A brief description of the circumstances under which supplemental eligible account holders will receive subscription rights to purchase your shares. (18) A brief description of how voting members may participate in the conversion. (19) A brief description of how directors, officers, and employees will participate in the conversion. (20) A brief description of the proposed plan of conversion. (21) The par value (if any) and approximate number of shares you will issue and sell in the conversion. (c) Other requirements. (1) You may not solicit proxies, provide financial statements, describe the benefits of conversion, or estimate the value of your shares upon conversion in the letter, notice, or press release. (2) If you respond to inquiries about the conversion, you may address only the matters listed in paragraph (b) of this section. § 563b.140 May I amend my plan of conversion? You may amend your plan of conversion before you solicit proxies. After you solicit proxies, you may amend your plan of conversion only if OTS concurs. Filing Requirements § 563b.150 What must I include in my application for conversion? (a) Your application for conversion must include all of the following information. (1) Your plan of conversion. (2) Pricing materials meeting the requirements of § 563b.200(b). (3) Proxy soliciting materials under § 563b.270, including: (i) A preliminary proxy statement with signed financial statements; (ii) A form of proxy meeting the requirements of § 563b.255; and (iii) Any additional proxy soliciting materials, including press releases, personal solicitation instructions, radio or television scripts that you plan to use or furnish to your members, and a legal opinion indicating that any marketing materials comply with all applicable securities laws. (4) An offering circular described in § 563b.300. (5) The documents and information required by Form AC. You may obtain Form AC from OTS Washington and Regional Offices (see § 516.40 of this chapter) and OTS's website ( www.ots.treas.gov ). (6) Where indicated, written consents, signed and dated, of any accountant, attorney, investment banker, appraiser, or other professional who prepared, reviewed, passed upon, or certified any statement, report, or valuation for use. See Form AC, instruction B(7). (7) Your business plan, submitted as a separately bound, confidential exhibit. See § 563b.160. (8) Any additional information OTS requests. (b) OTS will not accept for filing, and will return, any application for conversion that is improperly executed, materially deficient, substantially incomplete, or that provides for unreasonable conversion expenses. § 563b.155 How do I file my application for conversion? You must file seven copies of your application for conversion on Form AC. You must file the original and three conformed copies with the Applications Filing Room in Washington, and three conformed copies with the appropriate Regional Office at the addresses in § 516.40 of this chapter. § 563b.160 May I keep portions of my application for conversion confidential? (a) OTS makes all filings under this part available to the public, but may keep portions of your application for conversion confidential under paragraph (b) of this section. (b) You may request OTS to keep portions of your application confidential. To do so, you must separately bind and clearly designate as “confidential” any portion of your application for conversion that you deem confidential. You must provide a written statement specifying the grounds supporting your request for confidentiality. OTS will not treat as confidential the portion of your application describing how you plan to meet your Community Reinvestment Act (CRA) objectives. The CRA portion of your application may not incorporate by reference information contained in the confidential portion of your application. (c) OTS will determine whether confidential information must be made available to the public under 5 U.S.C. 552 and part 505 of this chapter. OTS will advise you before it makes information you designated as “confidential” available to the public. § 563b.165 How do I amend my application for conversion? To amend your application for conversion, you must: (a) File an amendment with an appropriate facing sheet; (b) Number each amendment consecutively; (c) Respond to all issues raised by OTS; and (d) Demonstrate that the amendment conforms to all applicable regulations. Notice of Filing of Application and Comment Process § 563b.180 How do I notify the public that I filed an application for conversion? (a) You must publish a public notice of the application under the procedures in § 516.55 of this chapter, except that you must publish your notice within three days before or after you file your application for conversion. You must simultaneously prominently post the notice in your home office and all branch offices. Your notice must include the following information: (1) You filed an application for conversion with OTS; (2) You delivered copies of the application to OTS and to the Regional Office, including the addresses of the applicable OTS offices; and (3) A statement that anyone may file written comments, including objections to the plan of conversion and materials supporting the objections, within 20 days. You must include instructions regarding how a person may file a comment. (b) Promptly after publication, you must file four copies of any public notice and an affidavit of publication from each publisher. You must file the original and one copy with the Applications Filing Room in Washington, and two copies with the appropriate Regional Office at the addresses in § 516.40 of this chapter. (c) If OTS does not accept your application for conversion under § 563b.200 and requires you to file a new application, you must publish and post a new notice and allow an additional 20 days for comment. § 563b.185 How may a person comment on my application for conversion? Anyone may submit a written comment supporting or opposing your application for conversion with OTS. To do so, commenters must file within 20 days after you notify the public under § 563b.180. A commenter must file the original and one copy of any comments with the Applications Filing Room in Washington, and two copies with the appropriate Regional Office at the addresses in § 516.40 of this chapter. OTS Review of the Application for Conversion § 563b.200 What actions may OTS take on my application? (a) OTS may approve your application for conversion only if: (1) Your conversion complies with this part; (2) You will meet your regulatory capital requirements under part 567 of this chapter after the conversion; and (3) Your conversion will not result in a taxable reorganization under the Internal Revenue Code of 1986, as amended. (b) OTS will review the appraisal required by § 563b.150(a)(2) in determining whether to approve your application. OTS will review the appraisal under the following requirements. (1) Independent persons experienced and expert in corporate appraisal, and acceptable to OTS, must prepare the appraisal report. (2) An affiliate of the appraiser may serve as an underwriter or selling agent, if you ensure that the appraiser is separate from the underwriter or selling agent affiliate and the underwriter or selling agent affiliate does not make recommendations or affect the appraisal. (3) The appraiser may not receive any fee in connection with the conversion other than for appraisal services. (4) The appraisal report must include a complete and detailed description of the elements of the appraisal, a justification for the appraisal methodology, and sufficient support for the conclusions. (5) If the appraisal is based on a capitalization of your pro forma income, it must indicate the basis for determining the income to be derived from the sale of shares, and demonstrate that the earnings multiple used is appropriate, including future earnings growth assumptions. (6) If the appraisal is based on a comparison of your shares with outstanding shares of existing stock associations, the existing stock associations must be reasonably comparable in size, market area, competitive conditions, risk profile, profit history, and expected future earnings. (7) OTS may decline to process the application for conversion and deem it materially deficient or substantially incomplete if the initial appraisal report is materially deficient or substantially incomplete. (8) You may not represent or imply that OTS approved the appraisal. (c) OTS will review your compliance record under part 563e of this chapter and your business plan to determine how you will serve the convenience and needs of your communities after the conversion. (1) Based on this review, OTS may approve your application, deny your application, or approve your application on the condition that you will improve your CRA performance or that you will address the particular credit or lending needs of the communities that you will serve. (2) OTS may deny your application if your business plan does not demonstrate that your proposed use of conversion proceeds will help you to meet the credit and lending needs of the communities that you will serve. (d) OTS may request that you amend your application if further explanation is necessary, material is missing, or material must be corrected. (e) OTS will deny your application if the application does not meet the requirements of this subpart, unless OTS waives the requirement under § 563b.5(c). § 563b.205 May a court review OTS's final action on my conversion? (a) Any person aggrieved by OTS's final action on your application for conversion may ask the court of appeals of the United States for the circuit in which the principal office or residence of such person is located, or the U.S. Court of Appeals for the District of Columbia Circuit, to review the action under 12 U.S.C. 1464(i)(2)(B). (b) To obtain court review of the action, this statute requires the aggrieved person to file a written petition requesting that the court modify, terminate, or set aside the final OTS action. The aggrieved person must file the petition with the court within the later of 30 days after OTS publishes notice of OTS's final action in the Federal Register or 30 days after you mail the proxy statement to your members under § 563b.235. Vote by Members § 563b.225 Must I submit the plan of conversion to my members for approval? (a) After OTS approves your plan of conversion, you must submit your plan of conversion to your members for approval. You must obtain this approval at a meeting of your members, which may be a special or annual meeting, unless you are a state-chartered savings association and state law requires you to obtain approval at an annual meeting. (b) Your members must approve your plan of conversion by a majority of the total outstanding votes, unless you are a state-chartered savings association and state law prescribes a higher percentage. (c) Your members may vote in person or by proxy. (d) You may notify eligible account holders or supplemental eligible account holders who are not voting members of your proposed conversion. You may include only the information in § 563b.135 in your notice. § 563b.230 Who is eligible to vote? You determine members' eligibility to vote by setting a voting record date. You must set a voting record date that is not more than 60 days nor less than 20 days before your meeting, unless you are a state-chartered savings association and state law requires a different voting record date. § 563b.235 How must I notify my members of the meeting? (a) You must notify your members of the meeting to consider your conversion by sending the members a proxy statement authorized by OTS. (b) You must notify your members 20 to 45 days before your meeting, unless you are a state-chartered savings association and state law requires a different notice period. (c) You must also notify each beneficial holder of an account held in a fiduciary capacity: (1) If you are a federal association and the name of the beneficial holder is disclosed on your records; or (2) If you are a state-chartered association and the beneficial holder possesses voting rights under state law. § 563b.240 What must I submit to OTS after the members' meeting? (a) Promptly after the members' meeting, you must file all of the following information with OTS: (1) A certified copy of each adopted resolution on the conversion. (2) The total votes eligible to be cast. (3) The total votes represented in person or by proxy. (4) The total votes cast in favor of and against each matter. (5) The percentage of votes necessary to approve each matter. (6) An opinion of counsel that you conducted the members' meeting in compliance with all applicable state or federal laws and regulations. (b) Promptly after completion of the conversion, you must submit an opinion of counsel that you complied with all laws applicable to the conversion. Proxy Solicitation § 563b.250 Who must comply with these proxy solicitation provisions? (a) You must comply with these proxy solicitation provisions when you provide proxy solicitation material to members for the meeting to vote on your plan of conversion. (b) Your members must comply with these proxy solicitation provisions when they provide proxy solicitation materials to members for the meeting to vote on your conversion, pursuant to § 563b.280, except where: (1) The member solicits 50 people or fewer and does not solicit proxies on your behalf; or (2) The member solicits proxies through newspaper advertisements after your board of directors adopts the plan of conversion. Any newspaper advertisements may include only the following information: (i) Your name; (ii) The reason for the advertisement; (iii) The proposal or proposals to be voted upon; (iv) Where a member may obtain a copy of the proxy solicitation material; and (v) A request for your members to vote at the meeting. § 563b.255 What must the form of proxy include? The form of proxy must include all of the following: (a) A statement in bold face type stating that management is soliciting the proxy. (b) Blank spaces where the member must date and sign the proxy. (c) Clear and impartial identification of each matter or group of related matters that members will vote upon. You must include any proposed charitable contribution as an item to be voted on separately. (d) The phrase “Revocable Proxy” in bold face type (at least 18 point). (e) A description of any charter or state law requirement that restricts or conditions votes by proxy. (f) An acknowledgment that the member received a proxy statement before he or she signed the form of proxy. (g) The date, time, and the place of the meeting, when available. (h) A way for the member to specify by ballot whether he or she approves or disapproves of each matter that members will vote upon. (i) A statement that management will vote the proxy in accordance with the member's specifications. (j) A statement in bold face type indicating how management will vote the proxy if the member does not specify a choice for a matter. § 563b.260 May I use previously executed proxies? You may not use previously executed proxies for the plan of conversion vote. If members consider your plan of conversion at an annual meeting, you may vote proxies obtained through other proxy solicitations only on matters not related to your plan of conversion. § 563b.265 How may I use proxies executed under this part? You may vote a proxy obtained under this part on matters that are incidental to the conduct of the meeting. You may not vote a proxy obtained under this subpart at any meeting other than the meeting (or any adjournment of the meeting) to vote on your plan of conversion. § 563b.270 What must I include in my proxy statement? (a) Content requirements. You must prepare your proxy statement in compliance with this part and Form PS. You may obtain Form PS from OTS Washington and Regional Offices (see § 516.40 of this chapter) and OTS's website ( http://www.ots.treas.gov ). (b) Other requirements. (1) OTS will review your proxy solicitation material when it reviews the application for conversion and will authorize the use of proxy solicitation material. (2) You must provide an authorized written proxy statement to your members before or at the same time you provide any other soliciting material. You must mail authorized proxy solicitation material to your members within ten days after OTS authorizes the solicitation. § 563b.275 How do I file revised proxy materials? (a) You must file revised proxy materials as an amendment to your application for conversion. See § 563b.155 for where to file. (b) To revise your proxy solicitation materials, you must file: (1) Seven copies of your revised proxy materials as required by Form PS; (2) Seven copies of your revised form of proxy, if applicable; and (3) Seven copies of any additional proxy solicitation material subject to § 563b.270. (c) You must mark four of the seven required copies to clearly indicate changes from the prior filing. (d) You must file seven definitive copies of all proxy solicitation material, in the form in which you furnish the material to your members. You must file no later than the date that you send or give the proxy solicitation material to your members. You must indicate the date that you will release the materials. (e) Unless OTS requests you to do so, you do not have to file copies of replies to inquiries from your members or copies of communications that merely request members to sign and return proxy forms. § 563b.280 Must I mail a member's proxy solicitation material? (a) You must mail the member's authorized proxy solicitation material if: (1) Your board of directors adopted a plan of conversion; (2) A member requests in writing that you mail the proxy solicitation material; (3) OTS has authorized the member's proxy solicitation; and (4) The member agrees to defray your reasonable expenses. (b) As soon as practicable after you receive a request under paragraph (a) of this section, you must mail or otherwise furnish the following information to the member: (1) The approximate number of members that you solicited or will solicit, or the approximate number of members of any group of account holders that the member designates; and (2) The estimated cost of mailing the proxy solicitation material for the member. (c) You must mail authorized proxy solicitation material to the designated members promptly after the member furnishes the materials, envelopes (or other containers), and postage (or payment for postage) to you. (d) You are not responsible for the content of a member's proxy solicitation material. (e) A member may furnish other members its own proxy solicitation material, authorized by OTS, subject to the rules in this section. § 563b.285 What solicitations are prohibited? (a) False or misleading statements. (1) No one may use proxy solicitation material for the members' meeting if the material contains any statement which, considering the time and the circumstances of the statement: (i) Is false or misleading with respect to any material fact; (ii) Omits any material fact that is necessary to make the statements not false or misleading; or (iii) Omits any material fact that is necessary to correct a statement in an earlier communication that has become false or misleading. (2) No one may represent or imply that OTS determined that the proxy solicitation material is accurate, complete, not false or not misleading, or passed upon the merits of or approved any proposal. (b) Other prohibited solicitations. No person may solicit: (1) An undated or post-dated proxy; (2) A proxy that states it will be dated after the date it is signed by a member; (3) A proxy that is not revocable at will by the member; or (4) A proxy that is part of another document or instrument. § 563b.290 What will OTS do if a solicitation violates these prohibitions? (a) If a solicitation violates § 563b.285, OTS may require remedial measures, including: (1) Correction of the violation by a retraction and a new solicitation; (2) Rescheduling the members' meeting; or (3) Any other actions necessary to ensure a fair vote. (b) OTS may also bring an enforcement action against the violator. § 563b.295 Will OTS require me to re-solicit proxies? If you amend your application for conversion, OTS may require you to re-solicit proxies for your members' meeting as a condition of approval of the amendment. Offering Circular § 563b.300 What must happen before OTS declares my offering circular effective? (a) You must prepare and file your offering circular with OTS in compliance with this part and Form OC and, where applicable, part 563g of this chapter. Section 563b.155 governs where to file your offering circular. You may obtain Form OC from OTS Washington and Regional Offices (see § 516.40 of this chapter) and OTS's website ( http://www.ots.treas.gov ). (b) You must condition your stock offering upon member approval of your plan of conversion. (c) OTS will review the Form OC and may comment on the included disclosures and financial statements. (d) You must file seven copies of each revised offering circular, final offering circular, and any post-effective amendment to the final offering circular. (e) OTS will not approve the adequacy or accuracy of the offering circular or the disclosures. (f) After you satisfactorily address OTS's concerns, you must request OTS to declare your Form OC effective for a time period. The time period may not exceed the maximum time period for the completion of the sale of all of your shares under § 563b.400. § 563b.305 When may I distribute the offering circular? (a) You may distribute a preliminary offering circular at the same time as or after you mail the proxy statement to your members. (b) You may not distribute an offering circular until OTS declares it effective. You must distribute the offering circular in accordance with this part. (c) You must distribute your offering circular to persons listed in your plan of conversion within 10 days after OTS declares it effective. § 563b.310 When must I file a post-effective amendment to the offering circular? (a) You must file a post-effective amendment to the offering circular with OTS when a material event or change of circumstance occurs. (b) After OTS declares the post-effective amendment effective, you must immediately deliver the amendment to each person who subscribed for or ordered shares in the offering. (c) Your post-effective amendment must indicate that each person may increase, decrease, or rescind their subscription or order. (d) The post-effective offering period must remain open no less than 10 days nor more than 20 days, unless OTS approves a longer rescission period. Offers and Sales of Stock § 563b.320 Who has priority to purchase my conversion shares? You must offer to sell your shares in the following order: (a) Eligible account holders. (b) Tax-qualified employee stock ownership plans. (c) Supplemental eligible account holders. (d) Other voting members who have subscription rights. (e) Your community, your community and the general public, or the general public. § 563b.325 When may I offer to sell my conversion shares? (a) You may offer to sell your conversion shares after OTS approves your conversion, authorizes your proxy statement, and declares your offering circular effective. (b) The offer may commence at the same time you start the proxy solicitation of your members. § 563b.330 How do I price my conversion shares? (a) You must sell your conversion shares at a uniform price per share and at a total price that is equal to the estimated pro forma market value of your shares after you convert. (b) The maximum price must be no more than 15 percent above the midpoint of the estimated price range in your offering circular. (c) The minimum price must be no more than 15 percent below the midpoint of the estimated price range in your offering circular. (d) If OTS permits, you may increase the maximum price of conversion shares sold. The maximum price, as adjusted, must be no more than 15 percent above the maximum price computed under paragraph (b) of this section. (e) The maximum price must be between $5 and $50 per share. (f) You must include the estimated price in any preliminary offering circular. § 563b.335 How do I sell my conversion shares? (a) You must distribute order forms to all eligible account holders, supplemental eligible account holders, and other voting members to enable them to subscribe for the conversion shares they are permitted under the plan of conversion. You may either send the order forms with your offering circular or after you distribute your offering circular. (b) You may sell your conversion shares in a community offering, a public offering, or both. You may begin the community offering, the public offering, or both at any time during the subscription offering or upon conclusion of the subscription offering. (c) You may pay underwriting commissions (including underwriting discounts). OTS may object to the payment of unreasonable commissions. You may reimburse an underwriter for accountable expenses in a subscription offering if the public offering is limited. If no public offering occurs, you may pay an underwriter a consulting fee. OTS may object to the payment of unreasonable consulting fees. (d) If you conduct the community offering, the public offering, or both at the same time as the subscription offering, you must fill all subscription orders first. (e) You must prepare your order form in compliance with this part and Form OF. You may obtain Form OF from OTS Washington and Regional Offices (see § 516.40 of this chapter) and OTS's website ( http://www.ots.treas.gov ). § 563b.340 What sales practices are prohibited? (a) In connection with offers, sales, or purchases of conversion shares under this part, you and your directors, officers, agents, or employees may not: (1) Employ any device, scheme, or artifice to defraud; (2) Obtain money or property by means of any untrue statement of a material fact or any omission of a material fact necessary to make the statements, in light of the circumstances under which they were made, not misleading; or (3) Engage in any act, transaction, practice, or course of business that operates or would operate as a fraud or deceit upon a purchaser or seller. (b) During your conversion, no person may: (1) Transfer, or enter into any agreement or understanding to transfer, the legal or beneficial ownership of subscription rights for your conversion shares or the underlying securities to the account of another; (2) Make any offer, or any announcement of an offer, to purchase any of your conversion shares from anyone but you; or (3) Knowingly acquire more than the maximum purchase allowable under your plan of conversion. (c) The restrictions in paragraphs (b)(1) and (b)(2) of this section do not apply to offers for more than 10 percent of any class of conversion shares by: (1) An underwriter or a selling group, acting on your behalf, that makes the offer with a view toward public resale; or (2) One or more of your tax-qualified employee stock ownership plans so long as the plan or plans do not beneficially own more than 25 percent of any class of your equity securities in the aggregate. (d) If any person is found to have violated the restrictions in paragraphs (b)(1) and (b)(2) of this section, they may face prosecution or other legal action. § 563b.345 How may a subscriber pay for my conversion shares? (a) A subscriber may purchase conversion shares with cash, by a withdrawal from a savings account, or a withdrawal from a certificate of deposit. If a subscriber purchases shares by a withdrawal from a certificate of deposit, you may not assess a penalty for the withdrawal. (b) You may not extend credit to any person to purchase your conversion shares. § 563b.350 Must I pay interest on payments for conversion shares? (a) You must pay interest from the date you receive a payment for conversion shares until the date you complete or terminate the conversion. You must pay interest at no less than your passbook rate for amounts paid in cash, check, or money order. (b) If a subscriber withdraws money from a savings account to purchase conversion shares, you must pay interest on the payment until you complete or terminate the conversion as if the withdrawn amount remained in the account. (c) If a depositor fails to maintain the applicable minimum balance requirement because he or she withdraws money from a certificate of deposit to purchase conversion shares, you may cancel the certificate and pay interest at no less than your passbook rate on any remaining balance. § 563b.355 What subscription rights must I give to each eligible account holder and each supplemental eligible account holder? (a) You must give each eligible account holder subscription rights to purchase conversion shares in an amount equal to the greater of: (1) The maximum purchase limitation established for the community offering or the public offering under § 563b.395; (2) One-tenth of one percent of the total stock offering; or (3) Fifteen times the following number: The total number of conversion shares that you will issue, multiplied by the following fraction. The numerator is the total qualifying deposit of the eligible account holder. The denominator is the total qualifying deposits of all eligible account holders. You must round down the product of this multiplied fraction to the next whole number. ( [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A02-19730. Public record. Not legal advice.